How ERP is Incorporating Blockchain Technology

Blockchain technology often inspires an air of mystery. There’s the abstract hype about the ways it will change business, the confusion around how the technology actually works, the confounding association with digital currency such as Bitcoin, and the connection with the shady and secretive underworld that sometimes uses it for elicit ends.

This makes the blockchain sometimes feel like more than a new distributed ledger, and it masks the obvious applications for the technology in business.

“The main challenge is ignorance,” says Gil Perez, the senior vice president of digital assets and IoT for enterprise software maker, SAP. “People think that the blockchain solves all their problems, and they want to assign it magical properties.”

That’s ironic since one of the primary business uses for blockchain technology is transparency.

At its core, blockchain technology is a peer-to-peer database technology that serves as a distributed ledger that can be shared and added to but not changed; its like a digital receipt that keeps printing, permanently storing any digital information that a company enters and ensuring that this record travels together unaltered.

The permanency of this record means that blockchain technology could play an important role in manufacturing and contract provenance, serialization, track & trace and other areas such as supply chain management.

Much of this falls in ERP’s domain, which is why ERP makers are experimenting with the technology and collaborating with partners on early use cases.

“Over the past couple of years, ERP software providers have slowly become aware that blockchain will have a significant impact on their markets and products in the near future,” says Jack Shaw of the American Blockchain Council.

First Experiments with ERP and the Blockchain

Of the major ERP providers, SAP looks clearly ahead in blockchain experimentation, according to Shaw.

“Through their SAP Leonardo platform, they are facilitating the integration over time of blockchain into both SAP ERP apps as well as custom apps developed on the SAP platform by partners and even individual corporate customers,” he says.

Much of this experimentation has revolved around provenance and supply chain management.

One good use case for the blockchain is manufacturing, according to Perez at SAP. In the blockchain, manufacturers can include who designed a part, its specifications, and the history of each iteration. Within this same chain, a manufacturer also can record where each instance of a part was made, and what machine made it.

An early test case is Moog, an aerospace defense firm. They are working with SAP on using the blockchain for digital manufacturing and 3D printing. Serialization and the unique CAD file for each custom-printed part can be stored in the blockchain for greater provenance, a boon for individual 3D-printed parts, according to Perez.

“It also allows the installers and the maintenance and support people to quickly have access to a lot of information related to that specific part,” adds Perez, “including updates or recalls and all kinds of other things that might be of value to them.”

Another experiment includes smart contracts on SAP Ariba platform, since blockchain technology enables triggers. If-then logic and notifications can be embedded in contracts added to a blockchain, creating more automated and dynamic contracting—as well as provenance and a history of the contract, of course.

IBM Global Finance currently is using the blockchain for contracts, and the company has reduced the time spent resolving disputes by 75 percent since adopting the technology.

“Outside that, we haven’t seen too much that indicates how the ERP vendors view the tech and it’s impact on their businesses,” notes Jeremy Drane, the chief commercial officer for blockchain business app developer, Libre Technology. “Which is not to say they aren’t interested. Rather, it is early. So basically hold on to your seats.”

Ecosystem Resource Planning

Where this all is going might be much bigger than provenance or smart contracts, however. Some predict that the peer-to-peer nature of the blockchain could transform ERP and businesses processes more fundamentally.

“The blockchain enables a new type of customer to emerge, that of the ecosystem itself,” says Drane.

Currently, the ERP business model is centered around individual enterprises. Blockchain technology allows an ecosystem of companies to organize and share data where the primary metric is the performance of the ecosystem and not the individual enterprise, however.

“Consequently, we believe these blockchain-enabled ecosystems can be viewed as a new type of enterprise,” says Drane. “Blockchain tech forces you to consider your role in the broader set of business processes that occur across the ecosystem of players in which you operate. It forces you to be able to justify your value add, otherwise you will be made redundant.”

Enterprise resource planning might evolve and eventually include ecosystem resource planning, in other words.

While this may or may not be the direction of things for ERP systems, what is more clear is that blockchain technology within ERP is just around the corner.

“By the end of 2017, there will be blockchain-enable ERP applications in production at many companies in several industries,” says Shaw at American Blockchain Council. “Supply chain and logistics will be the most widely used at first. By 2020, use of Blockchain-enabled ERP will be widespread.”

Examples are few and far between at the moment, but SAP and others say blockchain enterprise applications are coming. And soon.

About the Author

Peter Kowalke is journalist and editor who has been covering business, technology and lifestyle trends for more than 20 years. When not writing, he runs Kowalke Relationship Coaching.